 Income tax 2021-2022. Interest income. Get ready to get refunds to the max. Diving into income tax 2021-2022. Here we are in our income tax formula. Looking at that top line, that income line, the deceptively simple line because it's just one line, but there's a lot of things that could be feeding into it. If you're thinking about it in terms of an Excel worksheet, you get to give it as the summary sheet, other sheets fitting into it, thinking of it in terms of the tax return, it being like the 1040 of this formula and other schedules and forms flowing into it. And in this case, possibly a Schedule B could be flowing into it income reported for interest. So the interest income is gonna be something that typically you're going to be getting from your financial institutions like banks, savings and loans, credit unions. Typically you have the same type of scenario here where the person that's paying, in this case the financial institutions generally, the government has to leverage over those institutions to report the income to the person that is being paid. So we, the recipient of the interest, are getting income from the financial institution like a bank, savings, loan, credit union. And the bank then needs to report that interest to us generally with the form 1099. So usually it's gonna be a fairly straightforward type of situation where we'll have the 1099 although we could have more complex situations with tax exempt interest and so on and so forth. But generally straightforward, some interest income is tax exempt. Generally tax exempt income is from the government. So you might have the government if you invest in the government, one of the incentives they have is to make it basically tax free or exempt kind of situation. That being the situation as we saw with income, the general rule being all income is taxable unless there's an exception. This being an exception, the government saying which is gonna say this type of income is exempt. So here we've got a schedule 1099 INT. Now note that the schedule 1099 INT that you get from say a bank may not look exactly like formatted like this, but the same box numbers will be there. They might just, for example, give you the relevant box numbers instead of all the empty boxes and so on. But you should have the box number. It should say 1099 INT indicating what it is. And then if you have any questions about it, you can look at the instructions for the 1099. So we have the payer, we got the payers TIN, the recipients TIN, the recipients name, the address and so on, the account number. And then we've got the payers RTN if applicable, interest income. This would be the primary box where you would see it if it was just normal interest income like from a bank, for example, to early withdrawal penalty if there was some kind of penalty that would be applied to it. In fact, for example, if it was under like the umbrella of a retirement plan or something it was early distribution or something like that. Three, interest on US saving bonds and treasury obligations for federal income tax withheld. Oftentimes with interest you're not gonna have any withholdings because the interest is usually, it's not gonna be the largest amount. So if you have a lot of interest then you might have some withholdings taken on it, typically not. Investment expenses if applicable, foreign tax paid if applicable, foreign country or US possession, tax exempt interest. So if you have tax exempt interest, box eight still need to report it but it might be exempt. Special private activity bond interest if applicable, market discount, bond premium, bond premium on treasury obligation, bond premium on tax exempt bond, tax exempt and tax credit bond and then we've got the state information. So notice generally the main information will be the interest up top and then possibly this tax exempt interest are often types of boxes you might see. Many of the other ones may not always be applied but they could from time to time and if they are then you can take a look at the instructions. So here are the instructions so you could go over them in more detail and look at each of the box line by line instructions if there are questions regarding any of them I won't go into them in detail now. Other interest that must be reported, imputed interest of loans made at below market interest rates. So this is gonna be an uncommon type of scenario but if a loan was made then you would expect the loan would be at market, the market would drive basically interest rates in the negotiation of the loan. If there's a below market rate then for whatever reason, if it's below then you would have to impute it or calculate what you believe the market rate would be so that you're reporting the proper interest so you're paying the income tax on it. Interest on bonds sold between interest dates. So if there's a bond that was sold and there's interest between dates and other kind of more a scenario that might not be as usual type of a scenario if you saw this on the tax return and this is page one of the 1040 we've got the taxable interest here tax exempt interest so notice even if exempt we would typically be needing to report it on the 1040 still if the taxes were above a certain threshold then they would be reported on the schedule B so you've got the schedule B here as well and the schedule B then would pull into given more detail possibly breaking out the bank by bank or financial institution by financial institution the total of the schedule then pulling over to the form 1040. Tax exempt interest. If you receive any tax exempt interest including any tax exempt original issue discount OID such as from unicellable bonds each payer should send you a form 1099 INT or form 1099 OID in general your tax exempt stated interest should be shown on box eight so box eight of the tax return of form 1099 INT or for a tax exempt OID bond in box two of the form 1099 OID and your tax exempt OID should be shown in box 11 of form 1099 enter the total online to A however if you acquired a tax exempt bond at a premium only report the net amount of the tax exempt interest online to A that is the excess of the tax exempt interest received during the tax year over the amount amortized bond premium for the year also if you acquired a tax exempt OID bond at an acquisition premium only report the net amount of tax exempt OID online to A that is the excess of tax exempt OID for the year over the amortized acquisition premium for the year C publication 550 for more information about OID bond premium and acquisition premium tax exempt interest continued also include online to A any exempt exempt interest dividends from mutual fund or other regulated investment company this amount should be shown in box 11 a form 1099 D so box 11 a little bit more unusual but you can again if you see something unusual on it or any of the boxes you can look at the instructions to get more detail on it don't include interest earned on your IRA health savings account archer or medical Advantage MSA or Coverdale education savings account so these are kind of accounts that typically you're gonna get some benefit in them by basically being able to accrue up the gains on him that like the interest going up without having to report them as you earn them possibly then reporting them when you draw the money out or use them for example so for example with an IRA then you might have interest that you have earned but you're not gonna be reporting it until you pull the money out now that you when you're when you're asking a question about that you're gonna be knowing you're gonna know that or you can have some idea that that is the case by the fact that you're not gonna get a 1099 to report the interest on like an IRA if it's not something that you're required to report so you'll be able to know that generally because you're most likely not gonna get any 1099 in those instances but you wanna be aware of that because you don't wanna be driven just by the forms and you wanna be able to explain to somebody they might ask and say hey look I got all this money that I'm making money I'm making interest on how come you're not reporting it and if you just answer well because I didn't get a 1099 that doesn't really expand it because that doesn't cover the fact that you don't need to report it just because you didn't get a form to report income because generally you need to report all income that's reportable whether you get a form or not so what you'd like to be able to be able to explain is that well yeah we didn't get a 1099 the financial institution didn't send it out in this case because it's not something that we need to add because it's under this special condition of an IRA or something like that and we don't have to report the earnings on it because you've locked your money away or you've made it more restrictive to get it until the retirement and in exchange for that the reason you did that is to basically have these benefits for example earnings that are not gonna be taxed until distributed possibly at the point of retirement so don't include any amounts related to the forgiveness of PPP loans on this line so we talked a little bit about PPP loans in the past or in a prior presentation that's another special kind of condition that's gonna be for this for the last couple years where they had that PPP loan that was in place or possible to get and that would be usually a business related kind of situation, interest income each payer should send you a form 1099 INT form 1099 OID enter the total taxable interest income online to B but you must fill in and attach Schedule B if the total is over $1,500 or any of the other conditions listed at the beginning of Schedule B instructions applies to you so in general if you have a little bit of interest then you might not need an added Schedule Schedule B but if your interest income goes over a certain threshold and or dividend income then because those two are gonna be reported we'll talk about dividend income later then the threshold 1,500 is the general rule you'd have to then include the Schedule B giving more detail to the IRS about the interest income and then that number pulls into the first page of the 1040 for more detail about reporting taxable interest including market discount on bonds and adjustments for amortized amortizable bond premiums or acquisition premiums you can see publication 550 find that on the IRS website irs.gov interest credited in 2021 on deposits that you couldn't withdraw because of the bankruptcy or insolvency of the financial institution may not have to be included in your 2021 income for details about that you can look at publication 550